Earlier this week we learned that many older Americans are worried about being able to maintain a comfortable standard of living throughout retirement. Such concerns are especially warranted after accounting for the growing cost of healthcare. For example, a recent study from Willis Towers Watson calculated that healthcare costs across the globe rose by an average of 7.5 percent in 2014, 8.0 percent in 2015, and are estimated to rise by more than 9.0 percent this year. What is worse, at least from a financial perspective, is that life expectancies are continuing to rise and therefore lengthening the number of years that a retiree must be able to cover potential expenses with their savings and other sources of income. In 1900, for instance, only around 13 people out of every 100,000 made it to the age of 100, according to the Centers for Disease Control and Prevention (CDC). For Americans born in 1950, 199 out of every 100,000 are currently projected to make it to 100 years of age, and 1,968 out of every 100,000 born in 2010 are expected to become centenarians.
Apart from the routine and emergency room healthcare needs that most people are familiar with, a related expense that many Americans have likely not even accounted for is long-term care. Indeed, long-term care has to do with the various services and supports necessary to meet health or personal care needs over an extended period of time, e.g. medical and non-medical care for people with a chronic illness or disability. The U.S. Department of Health & Human Services (HHS) estimated that around 52 percent to 70 percent of Americans turning age 65 can expect to use some form of long-term care during their lifetimes, and according to 2013 projections produced by the Congressional Budget Office (CBO), long-term care expenses could more than double from 1.3 percent of U.S. gross domestic product (GDP) in 2010 to 3.0 percent of GDP by 2050. Basic expenses related to long-term care can be significant, with the national average fee for a home health aide and a registered nurse last year being $22 per hour and $83 per hour, respectively. As for a skilled nursing facility, the average annual costs can not only be quite high but also differ substantially from state to state, e.g. $56,940 in Texas compared to $151,110 in Connecticut. Such potential price variations must be taken into consideration by any individuals who plan to retire somewhere different from where they spent their working years.
Sources: Calculated Risk, U.S. CDC, U.S. HHS, CBO, NAPA, Lincoln Financial GroupPost author: Charles Couch